Jimmy: “Pssst. There’s an elephant in the living room, but we’re pretending it’s not really there and it’s not really an elephant.”
Sammy: “But it’s enormous and it smells!”
Jimmy: “Just ignore it. Maybe it will go away.”
Sounds silly, doesn’t it? How could anyone ignore an elephant in the living room?
The pachyderm metaphor describes issues we don’t want to confront, that cause conflict or that we believe are best left alone because no solution is readily apparent.
For many producers, succession planning is an example of this “avoidance” phenomenon, just as estate or financial planning can be for the average individual. According to LIMRA research, only a small percentage of insurance producers have a formal succession plan in place, even though the average age of producers is around 58.
This may explain, at least partially, why only about one-third of family businesses continue into the second generation and less than 15% survive into the third generation.
While the research on this attrition is sound, myths dominate its explanation. Whether a particular factor in a “failed business handoff” is a myth or a truth often can be attributed to one driver: personality variables and how they impact family dynamics and key decisions. And yet, few insurance entrepreneurs proactively address this “soft” issue.
An overused explanation for the falloff is that second-generation successors are less ambitious and less hungry than the founder. Another is that as families grow larger, family members tend to separate because of differing interests.
A third explanation is that family members distance themselves from the business because of the emotional environment in which individuals struggle to distinguish between a family and a business issue.
All family- and non-family-owned businesses face a common challenge: people issues. But because people dynamics are often difficult to grasp and manage, principals tend to focus on the five logical and tangible steps of the process:
1. Defining and organizing the business for sale and/or succession;
2. Setting financial objectives;